Small (business) is beautiful

Not too many years ago the thing NZers were most likely to know about Finland is that some people from there were really good at driving fast. Then came Nokia, the remarkable company that went from making paper and gumboots to being the world leader in mobile phone technology.

A recent article in the NBR reveals that between 1998 and 2007 Nokia contributed about a quarter of Finland’s economic growth, close to 30% of the country’s R&D spend, and generated nearly 20% of all exports. The same article quotes a member of a recent Finnish trade delegation to New Zealand, who said that Finland had become too reliant on Nokia, and that “…you need a few flagships, that’s for sure, but you don’t need one company that carries 4% of your GDP. I’d much rather diversify and have it in smaller pieces”. As Nokia has been overtaken by smartphones, especially the iPhone, the Finns have had to rethink and seek to reinvent their economic model.

The obvious analogy with the New Zealand economy is our heavy reliance on the dairy industry, particularly Fonterra, and a few other high volume, low value commodities. (Taking a moment to look over my shoulder as I’m writing this, I see yet another massive stack of raw pine logs sitting on Wellington’s wharf…).

Let’s take an economic lesson from one of the basic principles of ecology – monocultures are highly susceptible to external changes or interventions, while complex and diverse ecosystems are much more resilient and able to withstand shocks. While we want and need some economic ‘flagships’, the tall specimen trees, we neglect the undergrowth and the emerging saplings at our peril.

The present government has done very little to encourage or support emerging companies. The much vaunted voucher schemes that are nominally available to support research and development and capability building are not well regarded by many in the business community. According to most of the feedback I hear from business people, the schemes demand a lot of time and effort on the part of applicants, with a very low probability of eventual success, and are heavily weighted towards exporting companies, at the expense of companies producing goods or services for local consumption or export substitution.

Let’s take a lesson from the Finnish experience. A smart, Green economy will be diverse, well integrated, resilient, and those are the characteristics our policy settings and investment need to deliver.

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3 thoughts on “Small (business) is beautiful”

New Zealand doesn’t have to be better at this [“small smart niche products”] than everyone else, we just have to do it and take our place in the world. Ok, we’re geographically disadvantaged, so we have to try harder, but in the 21st century, many products are “weightless”, and travel at the speed of light, so we are less disadvantaged than ever before.

Watch this YouTube video documentary from 1983, about a small New Zealand company, founded in 1974, still going today, with most of their product going to export.

I’ve been hearing the “small smart niche products” mantra for many years now. Nobody seems to know why New Zealand should be better at this than anyine else, nor how we stop successful ideas being whisked off overseas as soon as they become anything more than tiny manufacturing operations.